Death of the internal combustion engine — Cowen's best stocks to play the trend

Published Sun, Dec 4 20228:17 AM EST

The rules of the road are changing when it comes to what people are driving — or will be driving in the future. For more than 100 years, automobiles have been powered by internal combustion engines. Yet around the globe, consumers are slowly shifting to electric-powered vehicles and countries are putting bans of ICE-based engines into place. So far, 20 have announced such bans, with the earliest going into effect in 2025 in Norway and nine others in 2030, including in the UK, Sweden and Austria, according to a report from Cowen. The firm is now forecasting EV penetration at 21.5% in 2025 and 33.3% in 2030, up from its prior forecast of 9.6% and 25.7%, respectively. The boost was driven largely by Tesla 's continued success, new vehicles from incumbent domestic manufacturers (OEMs) and continued strength in China and Europe, said the firm's senior research analyst, Jeffrey Osborne. This disruption in the mobility space also includes automation, like driverless cars and advanced driver assistance systems (ADAS) applications. There are certain sectors and stocks that should benefit from these trends, Osborne said. "We see the shift towards safe, green, and connected vehicles having a profound impact on semiconductors, sensors, and battery materials," he wrote in the report. He sees OEMs evolving toward system solution providers, increased content of semiconductors, sensors and domain controllers/central compute systems being the winning formula and the lithium-ion battery remaining the dominant tech that powers EVs. Here are some of the stocks Cowen believes will be key beneficiaries. Technology and mobility architecture company Aptiv delivers mobility solutions and manufactures components for electrified, software-defined vehicles. Cowen said the company is "well positioned in the growing electrical architecture space as well as with electronic and safety applications." It is also poised to leverage Smart Vehicle Architecture (SVA) programs. The stock is down 37% year to date. Automotive supplier Visteon designs and manufactures electronics and connected solutions for the EV manufacturers. The company is well positioned to participate in the digitization of the cockpit, Cowen said. It is also exposed to consolidation trends within electronic control units and is working on domain controllers for autonomous and ADAS applications, the firm noted. Visteon shares have gained nearly 35 % so far this year. ChargePoint Holdings , an EV charging technology solutions provider, has 64% networked Level 2 charging station market share, excluding Tesla, and a growing EU footprint, Cowen said. The firm sees 33% revenue CAGR (the annualized average rate of revenue growth) through 2030, with gross margins improving to 41%. ChargePoint released third-quarter earnings Thursday that missed expectations, with its adjusted net income at $56 million, versus a StreetAccount estimate of $64.5 million. Its revenue was $125.2 million compared to the $132.2 million expected. Shares of ChargePoint are down nearly 39% year to date. Lithium-ion battery-maker Enovix is a disruptor and has unique architecture in its BrakeFlow technology, Cowen said. "An attractive potential customer list anchors the bull case, with an EV licensing model as the large cherry on top which likely manifests at some point soon via an initial JDA [joint development agreement] with an auto OEM," the report said. Shares have tumbled more than 52% so far this year. Piedmont Lithium , on the other hand, is up more than 15% year to date. The company develops battery-grade lithium hydroxide and other chemicals for EV and battery storage markets. Cowen said Piedmont Lithium has "a uniquely diversified footprint" and "should quickly become one of the largest producers of lithium chemicals in the world." Switzerland-based semiconductor company STMicroelectronics has a powerful portfolio and leadership in the chemical silicon carbide, which is underpinned by its lead customer Tesla, Cowen said. It believes the company is well positioned to benefit from both vehicle electrification and ADAS. Shares of STMicroelectronics are down almost 21% so far this year. Lastly, Israel-based Mobileye Global , which develops and deploys ADAS and autonomous driving systems, has a first-mover advantage in the ADAS market, according to Cowen. "Deep experience designing purpose-built SoCs [system-on-chip applications] and a decade+ of real world driving data support its positioning," the report said. Mobileye debuted on the stock market on Oct. 26 after being spun out of Intel . Shares are up 52% from its IPO price of $21 per share. — CNBC's Michael Bloom contributed reporting.